Starwood poised to foreclose on Michigan Avenue retail space

Starwood Property Trust is preparing to swoop in on a premier downtown Chicago retail property at the southwest corner of Michigan Avenue and Wacker Drive.

The Barry Sternlicht-led investment company placed a $42 million senior loan on the Shops at the LondonHouse on nonaccrual status last quarter, and the firm expects to foreclose on the property soon, chief financial officer Rina Paniry said on the company’s earnings call.

Starwood executives did not name the two-story retail property; a source familiar with the situation confirmed that the property at the base of the 452-room LondonHouse Chicago hotel was the one referenced in the call. Through a spokesperson, Starwood declined to comment.

The property owner is a joint venture of John Rutledge’s Oxford Capital Group and Angelo Gordon — a company that was acquired this week by TPG for $2.7 billion. The venture listed the property for sale with CBRE earlier this year. Angelo Gordon and TPG declined to comment; Rutledge, founder and CEO of Oxford, declined to comment.

The 30,000-square-foot retail space at 360 North Michigan Avenue sits at the base of the hotel, which opened in 2016 after Oxford redeveloped the building. It was originally completed in 1923 and formerly known as the London Guarantee Building. It was offices before Oxford’s project and designated a Chicago landmark in 1996.

The hotel portion of the property was sold by Oxford and Angelo Gordon for $315 million to German investment manager Union Investment Real Estate, at what was a record price per room at the time of $697,000.

Though the retail space is 95 percent leased, according to CBRE marketing materials, at least one tenant is fending off a creditor – fast-casual chain Corner Bakery filed for Chapter 11 bankruptcy in February.

The property’s other tenants include coffee shop La Borra Del Cafe, seafood restaurant Ocean Prime and hamburger chain Smashburger, after the landlords made deals during the pandemic when little other retail action was occurring.

La Borra Del Cafe has also hit delays opening within the property since announcing plans in 2021 to make it the company’s third Chicago location. Representatives for the tenants did not respond to requests for comment.

A person familiar with Starwood’s interest in the property said the property owner is working to find a friendly resolution to the debt.

The space is just across the Chicago River from the start of the city’s storied Magnificent Mile retail corridor, which took significant hits during the pandemic with the departure of stores including Banana Republic, Gap, Macy’s, Uniqlo and Timberland. 

The Loop’s retail vacancy rate climbed to more than 28 percent last year, according to a March analysis from Stone Real Estate, up from 27 percent in 2021 and 15 percent in 2019, showing that the retail vacancy rate has decelerated since ballooning in the immediate aftermath of Covid shutdowns.

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